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Goal Setting (Photo credit: lululemon athletica)

Before you set out to make and keep a list of new year's resolutions for you and your company, consider this: Researchers from four top business schools have shown that goals often do more harm than good. Sean Silverthorne interviews HBS Professor Max Bazerman about the findings in this this Q&A, which first appeared on the HBS Working Knowledge website.

It's the rare manager who doesn't partake in quarterly or annual goal-setting exercises. And woe to those who don't make their goals SMART (Specific, Measurable, Attainable, Realistic, Timely).

But do these goals really work? Researchers from four top business schools have collaborated to show that in many cases goals do more harm than good. Worse, they can cause real damage to organizations and individuals using them.

"We argue that the beneficial effects of goal setting have been overstated and that systematic harm caused by goal setting has been largely ignored," the researchers conclude. Bad "side effects" produced by goal-setting programs include a rise in unethical behavior, over-focus on one area while neglecting other parts of the business, distorted risk preferences, corrosion of organizational culture, and reduced intrinsic motivation.

One example: the explosive Ford Pinto. Presented with a goal to build a car "under 2,000 pounds and under $2,000" by 1970, employees overlooked safety testing and designed a car where the gas tank was vulnerable to explosion from rear-end collisions. Fifty-three people died as a result.

Used wisely, goals can inspire employees and improve performance, the authors agree. But goal setting must be prescribed in doses, not as a standard remedy to increase productivity. They even offer a warning label and list 10 questions managers should ask themselves before starting goal setting.

We asked Professor Bazerman to explore in more depth some of the paper's findings.

Sean Silverthorne: So, are you against incentives and goals?

Max Bazerman: No, my coauthors and I are not against incentives. We believe in incentives. And each of us has found goals useful in limited domains. But we are concerned about the simple specification of stretch goals that permeates the goal setting and management by objectives literature.

Q: How can goal setting go wrong?

A: When people focus on a specific stretch goal, and fail to perform other valued activities that are needed by the organization, goals are failing. This is what Staw and Boettger found many years ago.

When employees care exclusively about reaching a goal, and bad things can happen if they fail, cheating goes up. This is the most important result in the goal setting literature—found by my coauthors Lisa Ordóñez and Maurice Schweitzer.

Q: Are goals by themselves a problem, or is it the way we use them?

A: When we can so easily predict the dysfunctional behavior that will ensue, I would argue that it is the goals themselves. Far too often, people want to blame the individual. But when organizations and governments create dysfunctional systems that can be predicted to lead to bad behaviors, I see the problem starting with the dysfunctional system. And I see the creating of optimal systems as a key leadership function.

Q: Specifically, what is wrong with managers designing stretch goals for employees to expand their knowledge or capabilities?

A: If you know the exact specific behaviors you want, stretch goals may be just fine. But, if you want employees to engage in other pro-social behaviors (e.g., helping others in the organization) and/or to act ethically, you need to be a lot more careful than simply providing a stretch goal.

Additionally, there is a growing set of research that shows "learning or mastery" goals have much more positive effects on performance and internal motivation than "performance" goals.